LAW OF AGENCY
Agency is the relationship where one person, the principle, appoints another, the agent, to bring, modify or terminates legal relations between Principle and one or more third parties.An agent is a person who is empowered to represent another legal person called Principle and to bring the principle into a legal relationship with third parties.
TYPES OF AGENT
There are a number of specific types of agent. There are many examples agency relationship. Some examples are listed below.Partners Partners are the agents of each other
Promoters Promoters act on behalf of an unincorporated companies.
Factors A factor takes possession of the goods for disposing of. A mercantile agent has authority either to buy or sell goods or to raise money on security of goods in the customary course of his business
Brokers A broker negotiates sale contracts for Principle
Estate Agent An estate agent is an intermediately who seeks to find a buyer of a house or the other property belonging to his Principle.
Del Credere Agents A del Credere agent guarantees to his principle that third parties will perform his contractual obligations.
Bankers Banks often do act as agents for their customers
Auctioneers An auctioneer is an agent who is authorized to sell property at auction. He is the agent of the vendor. But when the sale has been completed he is also the agent of the buyer for the purpose of making a written record of the sale
Commercial Agent A commercial Agent is a self employed intermediately who has continuing authority to negotiate the sale or purchase of goods on Principle behalf or to negotiate and conclude the sale or purchase of goods on Principle’s behalf
DISTRIBUTORS, FRANCHISEES, LICENSEES AND SUBSIDIARY COMPANIES DO NOT, GENERALLY, ACT AS AGENTS.CREATION OF AGENCYNo one can act as an agent without the consent of the principal, although consent need not be expressly stated White v Lucas
The principal/agent relationship can be created in a number of ways.
Express AgreementThis is the most common manner in which a principal/agent relationship comes into existence. In this situation, the agent is specifically appointed by the principal to carry out a particular task or to undertake some general function. In most situations, the appointment of the agent will itself involve the establishment of a contractual relationship between the principal and the agent but need not necessarily depend upon a contract between the parties. For the most part, there are no formal requirements for the appointment of an agent, although, where the agent is to be given the power to execute deeds in the principal’s name, they must themselves be appointed by way of a deed.
Implied AgreementTwo persons may by their relationship or their conduct to each other imply an agreement between them that one is agent of the other.This implied authority might fail into one of three categories.It may be incidental authority, which is the implied authority do whatever is necessarily or normally incidental to the agent’s activities.It may be customary authority, customary authority relates to the authority of agents operating in a particular market or business. Such that they have authority, which an agent operating in that market or business usually has.It may be usual authority, this is similar to customary authority
Ratification An agency is created by ratification when a person who has no actual authority purports to contract with a third party on behalf of a principal and the principal subsequently accepts the contract. Where the principal elects to ratify the contract, it gives retrospective validity to the action of the purported agent. In order for ratification to be effective the principal must have been in existence at the time when the agent entered into the contract Kelner v Baxter
The principal must have had legal capacity to enter into the contract when it was made. An undisclosed principal cannot ratify a contract, so if the agent appears to be acting their own account, then the principal cannot later adopt the contact Keighley, Maxsted and Co v Durant. The principal must adopt the whole of the contract and cannot pick and choose which parts of the contract to adopt. Finally ratification must take place within a reasonable time
Necessity / Operation of LawAgency by necessity occurs under circumstances where, although there is no agreement between the parties, an emergency requires that an agent take particular action in order to protect the interests of the principal. The usual situation which gives rise to agency by necessity occurs where the agent is in possession of the principal’s property and, due to some unforeseen emergency, the agent has to take action to safeguard that property. In order for agency by necessity to arise, there needs to be a genuine emergency Great Northern Railway Co v Swaffield A railway company transported the defendant horse. When no one arrived to collect it at its destination, it was placed in a stable. It was held that the company was entitled to recover the cost of stabling because necessity had forced the railway company to act as they had done as the defendant’s agent
There must also be no practical way of obtaining further instructions from the principal Springer v Great Western Railway Co Also the person seeking to establish the agency by necessity must have acted bona fide in the interests of the principal Sachs v Miklos
Estoppel This form of agency is also known as ‘agency by holding out’ and arises where the principal has led other parties to believe that a person has the authority to represent him. In such circumstances, even though no principal/agency relationship actually exists in fact, the principal is prevented (estopped) from denying the existence of the agency relationship and is bound by the action of his or her purported agent as regards any third party who acted in the belief of its existence. To rely on agency by estoppel, there must have been a representation by the principal as to the authority of the agent Freeman and Lockyer v Buckhurst Park Properties Ltd The party seeking to rely on it must have relied on the representation.
Disclosed Agency In normal circumstances the agent discloses to the other party that he is acting for a Principle whose identity is also disclosed. The contact, when made, is between the Principle and the other party.The agent has no liability under the contract and no right to enforce it. An agent may, however, be liable under the contract in some cases.If the agent executes a deed in his own name he should sign.If the agent sings a negotiable instrument without indicating that he does so in a representative character on behalf of principle he may be liable.Where by trade custom the agent is liable.Where the Principle is fictitious or non-existence, the agent contracts for himself and so is liable as the true Principle
TERMINATION OF AGENCY
Termination by the Parties Termination by completion of the agreement. This will occur when either the period fixed for the agreement comes to end.q When the specific purpose for agreement was created has been accomplishedq The parties may at any time mutually agree to terminate the agencyq The principle may revoke the agent’s authority at any time. A termination in breach of contract will be an effective termination, but the agent will be entitled to damages for breach of contract. One exception of this rule is Agency Coupledq The agent may renounce the agency. A termination in breach of contract will be an effective termination, but the principle will be entitled to damages for breach of contract
Termination by operation of Lawq This will occur:1. On the death of the Principle or the Agent2. On the insanity of the principle or the Agent3. Bankruptcy of the Principle, and also probably the agent4. When performance of the agency task becomes impossible
DUTIES OF AN AGENT Agent generally owes fiduciary duties to Principle.
He is required by law to Act as he is asked,Follow orders, Show reasonable care and skills, Not to delegate unreasonably, Not to have a conflict of interest Not make secrets profits Not to disclose confidentional information pertaining to the Principle even after termination of agency.
Any breach of these duties will hold him liable for damages, accountability and as constructive trustee. Just like Principle, Agent is bound under the 1993 Regulations of Act dutifully and in good faith. He is also required to Make proper efforts to negotiate and conclude truncations he is instructed to handle,To communicate to principle all necessary information available to him and to comply with Principle’s reasonable instructions
RIGHTS OF AN AGENTINDEMNITY AND REMUNERATION An agent is entitled, apart from the personal right for compensation for breach, to indemnify for expenses reasonably incurred and the remuneration, for which he may claim lien or the right of recoupment by debit to Principle Account. An agent is generally only entitled to remuneration if it has been agreed between the parties and if he has been the effective cause of the event her was employed to bring about. The sale must generally be completed before agent m ay claim any commission payable. Where principle prevents agents from earning his commission, principle may be liable. However, the courts will not imply any term into the arrangement the effect of which would be to restrict principle’s right to deal with his property
AUTHORITY OF THE AGENT
EXPRESS AUTHORITYWhen Agency relationship is established, the agent is instructed as to what particular tasks are required to be performed and is informed of the precise powers given in order to fulfill those tasks. If agent subsequently enters a contract outside his express authority, he will be liable to the principle and to the third part for breach of warrant of authority.For exampleMR. Junaid director of a company who sells caps and Cloths may be given the express power by the Board of Directors to enter into a specific contract of sell of Caps with Talha on behalf of the company. In such circumstances the company would be bound by the subsequent contract of sell of Caps, but the director would have no power to bind the company in other contracts.
IMPLIED AUTHORITY:Implied authority is the authority that derives from a person’s position. It arises from the relationship that exists between the principal and the agent and from which it is assumed that the principal has given authority to the other person to act as their agent. Thus, it is implied from the particular position held by individuals that they have the authority to enter into contractual relations on behalf of their principal and third parties are entitled to assume that agents holding a particular position have all the powers that are usually provided to such an agent. Without actual knowledge to the contrary, they may safely assumethat the agent has the usual authority that goes with their position.Watteau v FenwickThe new owners of a hotel continued to employ the previous owner as its manager. They expressly forbade him to buy certain articles, including cigars. The manager, however, bought cigars from a third party, who later sued the owners for payment as the manager’s principal. It was held that the purchase of cigars was within the usual authority of a manager of such an establishment and that for a limitation on such usual authority to be effective, it must be communicated to any third party.
In relation to companies, there are many layers of implied authority. For example, A person appointed as managing director usually is entitled to exercise all the powers of the company. Consequently a managing director can bind the company in any contract within its capacity, even if their actual authority has been curtailed in some way.Hely-Hutchinson v Brayhead LtsEqually, other agents of the company have different authority, thus shop assistants are able to bind their employers to contracts within the limited area of their authority
OSTENSIBLE AUTHORITY / APPARENT AUTHORITYOstensible authority is an aspect of agency of estoppel can arise in two distinct ways;Where one person makes a representation to third parties that another person has authority to act as his agent, but without actually appointing him as his ostensible/apparent agent. The principle is also liable for the actions of the agent, where he is aware that the agent claims to be his agent and yet does not nothing to correct that impression.Freeman & Locker v Buckhurst Park PropertiesK and H carried on business as property developers through a company which they owned equal shares. Each appointed another director, making four in all, but H lived abroad and the business of the company was left entirely under control of K. As a Director K had no actual or apparent authority to enter into contracts as agent of the company but he did make contracts as if he were a Managing director without authority to do so. The other directors were aware of these activities but had not authorized him. The claimant sued the company for work done on K’s instruction.It was held that the company was liable, a properly appointed Managing Director would have been able to enter into such contract and the third party was entitled to rely on the representation of the directors that the person in question had been properly appointed to that position.where a principle has previously represented to a third party that an agent has the authority to act on their behalf. Even if the principle subsequently revoke the agent authority he may still be liable for the actions of the former agent unless he has informed third parties who had previously dealt with the agent about situationWills Faber and Company V Joyce